The Authority for Advance Rulings (AAR), West Bengal has recently declared that input tax credit (ITC) will not be admissible against the GST paid on the purchase of motor vehicles for supplying rent-a-cab service, under the section 17(5)(b)(i) of the GST Act.
In a recent hearing, an applicant claimed that she provide rent-a-cab service according to the norms of Finance Act, 1994. Further, referring to the section 17(5)(a)(B) of the GST Act, she argued that it allows taxpayers to claim a credit against the purchase of motor vehicles that are due for supply passenger transportation services. The applicant also agreed that the cars on which credit request is made by her are taken on rent by other people for the transportation of passengers.
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Therefore, it was contended that Rent-a-Cab service essentially falls under the transportation of services, and GST paid on vehicles used for rent-a-cab service should be covered under the norms of section 17(5)(a)(B) of the GST Act. A few photocopies of invoices carrying details of total distance travelled through rented cars by passengers is also submitted by the applicant.
Although, after in-depth assessment, AAR has found that no credit facility is available against the GST paid on inputs for supply of rent-a-cab service, barring some specific conditions, which were simply absent in the applicant’s case. AAR further neglected the credit of input tax paid online for purchase of motor vehicles that were later used for rent-a-cab service.
Further, it was also noted by AAR that the amended provisions of section 17(5)(b)(i) of the GST Act also do not carry any specific reference for rent-a-cab service. However, after further amendments in the Act, there is a high possibility that ITC will simply not be applicable in respect of the supply of services of renting or hiring motor vehicles.
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In the recent decision, AAR said, “Rent-a-cab is not defined in the GST Act. Nature of the Applicant’s service is, therefore, derived from what is stated in the Application and what can be ascertained from the invoices. The Applicant provides cab rental service inter alia to institutions like West Bengal Postal Service. The recipient, as discussed in para 4.6, has to pay the Applicant a certain amount per month as consideration irrespective of what distance the cab travels in a particular month. The additional amount has to be paid if the cab is retained for extra hours or requisitioned on holidays.”
AAR, further announced that “To cover the cost of fuel, the distance travelled needs to be brought into play, but only if it crosses a certain threshold. it is, therefore, clear from the above discussion that the nature of the service the Applicant provides is classifiable under SAC 9966 as renting of a motor vehicle. The credit of GST paid on the purchase of motor vehicles or other inputs for the supply of the Applicant’s service is not, therefore, admissible in terms of section 17(5XbXi) of the GST Act.”
